Comparative balance sheets for 2021 and 2020, a statement of income for 2021, and additional information from the accounting records of Red, Inc., are provided below.

Additional information from the accounting records:

1. During 2021, $220.0 million of equipment was purchased to replace $160.0 million of equipment (95.0% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $50.0 million, it was necessary for Red to borrow $50.0 million from its bank.

Required:
Prepare the T-account for Red, Inc.

Financial Statement Ratio Analysis

The following information (in $000) has been obtained from Diamond Limited’s financial statements for the fiscal years ending December 31.

2020 2019   2018

Total assets $738 $583 $514

Current liabilities 78 71 93

Total liabilities 229 164 169

Total shareholders’ equity 494 427   387

Income before taxes 87 63 56

Interest expense 10 6 5

Net cash provided by operating activities 117 99 99

Net income 62 49 53

Number of common shares outstanding 67 77 73

Taken from stock market at Dec. 31 $16.3 $12.44 $11.7

Market price per share (not in $000)

There are no preferred shares issued by Diamond.

REQUIRED: Show all calculations. Round all calculations to two decimal places. Use appropriate units for each ratio calculation.

A. Calculate the following items for Diamond Limited for fiscal years 2019 and 2020:

i) Current cash debt coverage ratio

ii) Cash debt coverage ratio

iii) Rate of return on assets

iv) Earnings per share

v) Price earnings ratio

vi) Times interest earned

B. Comment on whether there has been improvement or deterioration from 2019 to 2020 in the ratios calculated. Take the perspective of Diamond’s management. Briefly explain.

Reda Bhd is a company engaging in palm oil plantation which is based in Pahang. On 1
January 2010, the company acquired a factory building and a machine at a cost of
RM4,000,000 and RM800,000 respectively. The estimated useful life of the factory building
and the machine were as follows:
Factory building 50 years
Machine 20 years
Depreciation for all the assets is computed based on the straight-line method. The company
applied the revaluation model for all its property, plant and equipment. The followings are the
relevant information of the machine and the factory building.
Machine
On 30 November 2014, the operation manager of the company has proposed to the board of
directors, a new machine to replace the old machine. The new machine is equipped with the
latest technology which can increase the production capacity of the company. In line with this
decision, the company decided to conduct impairment test for the old machine.
As at 31 December 2014, Reda Bhd received a few offers from other factories to purchase
the available machine at RM500,000. Disposal cost for the machine is RM50,000. The value
in use is approximately RM750,000.
Factory building
At the end of 2016, the carrying value of the factory building was as follows:
RM
Net revalued amount as at 31 December 2014 4,500,000
Accumulated depreciation (From year 2015 to 2016) (200,000)
Impairment loss as at 31 December 2016 (600,000)
Carrying value as at 31 December 2016 3,700,000
The factory building was revalued on 31 December 2014 at RM4,500,000. During the year
2019, there were indications that the impairment loss recognised in 2016 may have been
reversed. The estimated recoverable amount is RM4,300,000.

Calculate the followings:
i. The impairment loss for the machine as at 31 December 2014.

ii. The amount of the reversal of impairment loss to be recognised in the Statement
of Profit or Loss for the factory building as at 31 December 2019. Show all
workings.

c. Prepare the journal entries to record the reversal of impairment loss for the factory
building as at 31 December 2019.

Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below:

GALAXY TOYS INTERNAL MEMO

Sept 15

To: Harry Wilson, Controller

Fm: Gary Resnick, Executive Vice President

As you know, we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month.

Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse?

Please let me know as soon as possible. The President is pushing for results.

Mary didn't know what to do about the memo. It wasn't intended for her, but its contents were alarming.

Required:

a. Why has Gary Resnick suggested reclassifying some period costs as product costs?

b. Why do you think Mary was alarmed about the memo?

Question 7

The following information is available for Skysong Corporation for 2020.

1. Compute taxable income for 2020.

2. Compute pretax financial income for 2020.

3. Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and 2021. Assume taxable income was $1,063,000 in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
4.  Prepare the income tax expense section of the income statement for 2020, beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

1. The Accounts Receivable balance for River Corporation is $400,000 as of January 31, 2020. Before calculating and recording January 2020 Bad Debt Expense, the Allowance for Doubtful Accounts has a credit balance of $5,000. Credit sales for January 2020 are $4,000,000, and over the past several years, 1% of credit sales have proven uncollectible. An aging of River Corporation’s Accounts Receivable results in a $43,000 estimate for the Allowance for Doubtful Accounts as of January 31, 2020. Part A: PERCENT OF SALES METHOD Assume that River Corporation uses the percent of sales method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? Accounts Receivable b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet? c. What is “Bad Debt Expense” on River’s January 2020 Income Statement? Part B: ANALYSIS OF RECEIVABLES METHOD Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet? c. What is “Bad Debt Expense” on River’s January 2020 Income Statement?

Use the starting balance sheet, income statement, and the list of changes to answer the question.

Between January 1 and March 31, 2020:

1. Cash decreases by $200,000
2. Liabilities decrease by $100,000
3. Paid-In Capital does not change
4. Dividends paid of $400,000

What is the value for Other Assets on March 31, 2020?

Note: Account change amounts are provided in dollars but the financial statement units are thousands of dollars.

Please specify your answer in the same units as the financial statements (i.e., enter the number from your updated balance sheet).

The comparative statement of financial position of Blue Spruce Corporation as at December 31, 2020, follows: BLUE SPRUCE CORPORATION Statement of Financial Position December 31 December 31 Assets 2020 2019 Cash $ 53,500 $ 11,900 Accounts receivable 89,600 87,200 Equipment 26,200 21,700 Less: Accumulated depreciation (9,800 ) (10,800 ) Total $ 159,500 $ 110,000 Liabilities and Shareholders’ Equity Accounts payable $ 20,300 $ 15,500 Common shares 100,000 79,600 Retained earnings 39,200 14,900 Total $ 159,500 $ 110,000 Net income of $37,600 was reported and dividends of $13,300 were declared and paid in 2020. New equipment was purchased, and equipment with a carrying value of $4,500 (cost of $11,500 and accumulated depreciation of $7,000) was sold for $7,600. Prepare a statement of cash flows using the indirect method for cash flows from operating activities. Assume that Blue Spruce prepares financial statements in accordance with ASPE.

Waterway Inc. reported the following pretax income (loss) and related tax rates during the years 2019–2022.

Pretax financial income (loss) and taxable income (loss) were the same for all years since Waterway began business. The tax rates from 2019–2022 were enacted in 2019.

a.  Prepare the journal entries for the years 2020-2022 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryforward. Assume that Jennings expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

c.  Prepare the portion of the income statement, starting with “Operating loss before income taxes,” for 2020.

d.  Prepare the portion of the income statement, starting with “Income before income taxes,” for 2021.